In: Finance
***Please provide excel formula breakdown if you can please *****
Face Value = | $100 | |||||
Coupen Rate = | 6% | |||||
Coupen Amount = | 100*6% | |||||
6 | ||||||
Maturity = | 10 years | |||||
Discount Rtae = | 7% | |||||
PVAF(7%, 10 years) = | 1/(1.07)^1 + 1/1.07)^2 + 1/(1.07)^3……………. 1/(1.07)^10 | |||||
7.023582 | ||||||
PVF (7%, 10) | 1/(1.07)^10 | |||||
0.508349 | ||||||
Price of bond = | 6* 7.02358 +100*.5083 | |||||
$92.98 |
A) | Price of the bond here quoted is 97 it is over priced hence we will sell the bond at 97 at 7% discount rate | |||||||
B) | If the Bond is quoted at $89 the price of bond is less than what we have calculated hence we wont | |||||||
Sell the bond because it is underpriced in the market | ||||||||
C) | Lowest price which we sell the bond is what we have calculated above that is 92.98 |
Note : here in the question it is assumed that face value of the bond is mistakenly quted as 1000 , it is taken as 100, or if the face value is 1000 then the price of the bond will become as $ 929.76 and change the answer accordingly